The Coronavirus Relief Fund (CARES Act, Title V): Background and State and Local Allocations

Contents

• Background
• Eligible Purposes
• Allocations Across States, Territories, and Tribal Areas
• Allocations to Governments Within States and Territories

Summary

The sudden decline in economic output following the Coronavirus disease 2019 (COVID-19) outbreak has significantly altered the fiscal outlook for state and local governments. A sizable share of economic output derives from state and local government activity. These governments are generally required to balance their operating budgets every one or two years. Early evidence suggests that the COVID-19 economic shock will have a notable impact on state and local budgets.

The Coronavirus Aid, Relief, and Economic Security Act (CARES Act; P.L. 116-136), signed into law on March 27, 2020, created the Coronavirus Relief Fund, which provides $150 billion in direct assistance for domestic governments. The CARES Act stipulates that the $150 billion provided to the Coronavirus Relief Fund is allocated to governments in states, territories, and tribal areas as follows: (1) $139 billion is allocated to state governments in the 50 states, with allocations based on their populations and with no state receiving less than $1.25 billion; (2) $8 billion is set aside for governments in tribal areas; and (3) $3 billion is allotted to governments in territories, including the District of Columbia and Puerto Rico.

Coronavirus Relief Fund assistance is provided to state governments. Local governments serving a population of at least 500,000, as measured in the most recent census data, may elect to receive assistance directly from Treasury. Such direct local assistance allocations reduce the allocation that is made to the state government (keeping the state allocation constant), and are equal to the product of (1) the state or territory allocation amount, (2) the share of the state or territory population served by the local government, and (3) 45%.

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The sudden decline in economic output following the Coronavirus disease 2019 (COVID-19) outbreak has significantly altered the fiscal outlook for state and local governments. The Coronavirus Aid, Relief, and Economic Security Act (CARES Act; P.L. 116-136), signed into law on March 27, 2020, created the Coronavirus Relief Fund, which provides $150 billion in direct assistance for state and local governments. This report briefly summarizes the background, purpose, and allocation details of the Coronavirus Relief Fund. Table 1 provides Congressional Research Service (CRS) estimates of Coronavirus Relief Fund allocations to states, Table 2 provides allocation amounts to territories, and Table 3 shows CRS estimates of county-level eligibility for local government assistance by state and territory.

Background

A sizable share of economic output derives from state and local government activity. State and local governments spent $3.7 trillion in 2017, 19% of gross domestic product (GDP), divided about equally across state governments (55% of combined state and local expenditures) and local governments (45% of combined state and local expenditures). ¹ These governments are generally required to balance their operating budgets every one or two years. For more on how economic shocks affect state and local government activity, see CRS Insight IN11258, State and Local Fiscal Conditions and Economic Shocks.

Early evidence suggests that the COVID-19 economic shock will have a notable impact on state and local budgets. Consumption declines following nonessential business closures and social distancing efforts are likely to produce a sharp drop in sales tax revenues (35% of state and local own-source revenues in 2017). Spikes in unemployment and decreased firm profitability are expected to have a similar effect on individual and corporate income tax receipts (26% of own-source revenues). ² Use of state and local spending programs is likely to increase, particularly for public welfare programs (19% of 2017 expenditures) as well as hospital and public health expenses (8% of 2017 expenditures).

The Coronavirus Relief Fund, established through Section 5001 of the CARES Act, offers a means of assistance for state and local governments. The Coronavirus Relief Fund provides a total of $150 billion in federal fiscal support for state and local governments, with eligibility dependent upon the location, level of government, and use of potential funds. Separately, Section 4003 of the CARES Act authorized use of Federal Reserve capacity to support up to $454 billion in debt issued by state governments, local governments, and eligible businesses. A similar fund, the State Fiscal Stabilization Fund, was created during the 2007-2009 recession by the American Recovery and Reinvestment Act of 2009 (P.L. 111-5). The State Fiscal Stabilization Fund provided $54 billion to state and local governments, most of which was targeted to certain types of spending for education programs.³

Eligible Purposes

Section 5001(d) of the CARES Act provides the eligible purposes for which Coronavirus Relief Fund payments may be used. Specifically, it allows state and local governments to make payments for programs that

(1) are necessary expenditures incurred due to the public health emergency with respect to Coronavirus Disease 2019 (COVID-19);

(2) were not accounted for in the budget most recently approved as of the date of enactment [March 27, 2020] of this section for the State or government; and

(3) were incurred during the period that begins on March 1, 2020 and ends on December 30, 2020.⁴

Per Section 5001(f) of the CARES Act, the Inspector General of the Department of the Treasury determines whether Coronavirus Relief Fund payments are used for eligible purposes. Fund payments that are deemed for ineligible purposes are treated as a debt owed by the implementing government to Treasury.

Coronavirus Relief Fund payments may not be used to directly account for revenue shortfalls related to the COVID-19 outbreak. Such funds, however, may indirectly assist with revenue shortfalls in cases where expenses paid for by the Coronavirus Relief Fund would otherwise widen the gap between government outlays and receipts. For instance, if $3 billion in Coronavirus Relief Fund assistance is sent to a government with revenues that are $10 billion lower than expected and $5 billion in new COVID-19-related expenses, that assistance will reduce the fiscal gap (from $15 billion to $12 billion) by the same amount regardless of whether it applies to revenues or spending. Only in cases where governments have revenue shortfalls and less related spending than the program provides are governments limited by the eligible purpose restrictions. For instance, in that same example but with no new COVID-19-related expenses, the government could not use Coronavirus Relief Fund assistance despite its decrease in revenues.

Allocations Across States, Territories, and Tribal Areas

The CARES Act stipulates that the $150 billion provided to the Coronavirus Relief Fund is allocated to governments in states, territories, and tribal areas as follows:⁵

• $139 billion is allocated for governments in the 50 states based on their populations (as measured by the U.S. Census Bureau in 2019), with no state receiving less than $1.25 billion.
• $8 billion is set aside for governments in tribal areas, with each tribal area's allocation based on its share of aggregate tribal expenditures in FY2019, as determined by the Secretary of the Treasury in consultation with the Secretary of the Interior.
• $3 billion is allocated to the territories of the District of Columbia (DC), Puerto Rico, U.S. Virgin Islands, Guam, Northern Mariana Islands, and American Samoa, with each territory receiving an amount based on its share of the total population across all territories, with populations determined by the Secretary of the Treasury.

Table 1 shows CRS estimates for Coronavirus Relief Fund allocations to states. Due to the $1.25 billion minimum allocation for states, every state with an allocation greater than the minimum amount receives a smaller allocation share (excluding amounts provided to tribal areas) than its share of the population. Most states with a minimum allocation amount, in contrast, have a larger allocation share than their population share.

Table 2 provides Coronavirus Relief Fund estimated allocations made to territories. As defined in Section 5001(c)(8) of the CARES Act, which specifies that population data draw from "the most recent year for which data are available from the Bureau of the Census," the relevant populations for DC and Puerto Rico draw from 2019 census estimates, while populations for the other territories draw from 2010 census estimates. Territory allocations are made in direct proportion to the relevant population estimate, with no minimum amount provided. Allocation shares for all territories except Puerto Rico are smaller than the state minimum amount.

Allocations to Governments Within States and Territories

Coronavirus Relief Fund assistance is generally provided to state governments. Local governments serving a population of at least 500,000, as measured in the most recent census data, may elect to receive assistance directly from Treasury. Such direct local assistance allocations reduce the allocation made to the state government (keeping the state allocation constant) and are equal to the product of

• the state or territory allocation amount;
• the percentage of the state or territory population served by the local government; and
• 45%.⁶

The CARES Act does not explicitly prevent local governments (regardless of their eligibility for direct assistance) from receiving Coronavirus Relief Fund payments from state governments, so long as the funds are used for eligible purposes. State governments transferred $534 billion to local governments in 2017, or 28% of all local government revenues.

Table 3 provides CRS estimates of the number of counties in each state eligible for direct assistance and the total available assistance for eligible county governments. Direct assistance eligibility varies greatly across states, ranging from those with no eligible counties (20 states) to those with county governments eligible for 38% of a state's allocation (Massachusetts and California). In total, CRS calculates that county governments are eligible to receive $29.2 billion (21% of nontribal allocations) in direct assistance.

The figures in Table 3 assume that county governments are eligible for the full amounts provided for in Section 5001 of the CARES Act, regardless of whether underlying city governments are also eligible for direct assistance. In many cases, populations are served by more than one local government that is eligible for direct assistance from the Coronavirus Relief Fund (e.g., city governments and county governments for large cities). There are also cases, such as those where a city includes jurisdictions in multiple counties, where local governments other than county governments may have increased eligibility or direct assistance availability relative to what is provided in Table 3. The Secretary of the Treasury will determine how to allocate direct assistance to qualifying local governments.

Author Contact Information

Acknowledgments

The author wishes to thank Jameson Carter, Gene Falk, and Maggie McCarty for their helpful contributions to this report.

Footnotes

1.	All state and local government finance data used in this report draw from U.S. Census Bureau, "2017 Survey of State & Local Government Finances," October 2019, available at https://www.census.gov/programs-surveys/gov-finances.html.
2.	There are no indications as yet of a comparable effect on the base for property taxes (32% of 2017 own-source revenues), which are predominantly collected by local governments.
3.	For more information about this program, see U.S. Department of Education, "State Fiscal Stabilization Fund," March 7, 2009, available at https://www2.ed.gov/policy/gen/leg/recovery/factsheet/stabilization-fund.html.
4.	Section 5001(d) of the CARES Act, p. 603.
5.	This allocation methodology differs from what was implemented by the American Recovery and Reinvestment Act of 2009 for the State Fiscal Stabilization Fund, which treated the 50 states, the District of Columbia, and Puerto Rico uniformly when implementing allocation procedures.
6.	Section 5001(c)(5) of the CARES Act.